April 22, 2008 / 5:42 AM / 10 years ago

Canadian miners hit as Ecuador halts exploration

TORONTO (Reuters) - Aurelian Resources and other Canadian miners with projects in Ecuador saw their shares tumble for a second day on Friday as the South American country voted to suspend their exploration projects for up to six months, until a new mining law with tougher environmental controls is approved.

A special assembly in Ecuador -- which is moving to tighten its grip on natural resources -- adopted a decree on Friday that would freeze mining activity in medium- and large-scale exploration projects, revoke concessions, and leave the companies operating there little recourse.

The assembly’s head specifically named Aurelian, along with fellow Canadians Corriente Resources and Iamgold Corp, saying there would be an “immediate” halt to operations.

Miners and industry observers bemoaned the delay, calling the government’s move a blow to junior miners, particularly those such as Aurelian with a fat stable of concessions in the Andean country.

“It sends a message that this administration is not fully aware of what mining can do for their economy, and what modern mining is like,” said Patrick Anderson, Aurelian’s chief executive.

“It’s an extremely left-wing faction of the president’s party who have an anti-mining agenda,” he said in an interview.

Shares of Aurelian, which has the large Fruta del Norte gold-silver deposit in Ecuador, plunged C$2.32, or 31.5 percent, to C$5.04 on the Toronto Stock Exchange, closing at their lowest point in nearly two years.

Aurelian -- which still hopes to bring Fruta del Norte to production in three to five years -- dropped more than 14 percent on Thursday, when Ecuador President Rafael Correa announced he supported the mining halt.

Corriente Resources, which holds Mirador and other copper assets, fell 50 Canadian cents, or 10.9 percent, to C$4.10. The larger Iamgold, which has the Quimsacocha gold deposit in southern Ecuador, was off 25 Canadian cents, or 3.4 percent, at C$7.13.

HUNDREDS OF CONCESSIONS REVOKED

The decree revokes hundreds of concessions and limits the amount any company can hold to three. Toronto-based Aurelian currently has 38 concessions in Ecuador.

Mining companies will not be allowed to appeal the government’s decision in courts and no compensation will be granted for expropriated holdings.

Correa’s leftist party, which aims to boost the country’s share of mining revenues, controls the special assembly that is rewriting Ecuador’s constitution.

The assembly’s head, Alberto Acosta, recently said he was concerned about the effects mining could have on the country’s pristine environment. Acosta said on Friday he will also propose a ban on open-pit mining.

Still, resource-rich Ecuador is seen lacking significant output of its precious metals.

“Just when it looked like Ecuador was establishing a modern mining industry, the rug is potentially pulled for six months,” Michael Gray, an analyst at Genuity Capital Markets, said before the vote on Friday afternoon.

In a note, Gray called Correa’s support for the mandate “a surprise and ... a negative development” for Aurelian, which would very likely have to postpone drilling at Fruta del Norte, which is expected to contain 13.7 million ounces of gold and 22.4 million ounces of silver.

Haywood Securities cut its rating on Aurelian stock to “sector underperform” from “sector outperform,” noting there appears to be little opposition to, or consultation on, the government’s decree.

Calls to Corriente and Iamgold were not immediately returned.

Iamgold said in a statement late Friday it was “closely monitoring the situation” and would seek clarification from authorities of any impact on Quimsacocha. It also said it was still “in a position to advance the work necessary to complete the prefeasibility study scheduled for July 2008.”

($1=$1.00 Canadian)

Additional reporting by Alonso Soto in Quito; editing by Rob Wilson, Allan Dowd

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